Over the next few years, users may have to pay more attention to the price of dynamic RAM (DRAM) chips than they have in a long time, since a transformation to new factory technology could cause shortages.
Normally, users enjoy falling DRAM prices for better storage capacity, the kind of price performance and technology improvement they've come to expect in most IT products. But the DRAM industry is transitioning to a new kind of semiconductor plant, and DRAM prices will be impacted as companies phase out outmoded factories over the next two years. The result is likely to be higher prices, according to analysts.
The new factories, dubbed 12-inch plants due to the (300mm) size of the silicon wafers used on production lines, are already outpacing older, 200mm chip factories in terms of the ability to cut costs: The 300mm plants produce chips for about a third less.
Silicon wafers are the raw materials from which chips are made, and thousands of DRAM chips can be made from one wafer.
As time goes on, the 200mm plants will also run into a wall for the size they can efficiently etch transistors on chips. Some analysts say that limit is already approaching, around the 90-nanometre (nm) size, while others say the plants could be tweaked to produce DRAM using 80nm production technology.
But there is general agreement that there is a limit, not because engineers are befuddled by the technology, but because it costs so much to retrofit a 200mm plant for intricate chip production.
"It doesn't make sense for companies to spend the money to upgrade 200mm plants. They'll put that investment towards new 300mm plants," memory industry analyst for ABN Amro Asia, Crystal Lee, said.
Currently, a number of 300mm chip factories are under construction in Taiwan and other parts of the world. But memory chip analysts reckon there aren't enough to make up for the production currently done by 200mm plants.
"Approximately one-third of the global DRAM capacity is becoming obsolete because it cannot be converted to 90nm and smaller processes. This suggests long-term capacity constraints, in our view," said Simon Woo, DRAM industry analyst for Merrill Lynch, Simon Woo, said in a recent report.
Taiwanese DRAM maker, Nanya Technology, which operates two 200mm factories in Taiwan, believes it will be able to produce advanced DRAM chips competitively in those plants until the middle of next year. After that, it will look to produce different kinds of memory chips in those factories, according to company vice-president, Pai Pei-Lin.
It's hard to predict exactly how DRAM prices will be affected by the factory transition. Some analysts believe the market will see firmer prices than normal over the next two years, while others predict bottlenecks and intermittent price spikes as older factories are phased out and new ones come online.
To be sure, not everybody agrees the DRAM industry will be hurt at all by the chip factory transition. Market researcher iSuppli's, Nam Hyung Kim, said there were enough new 300mm plants under construction to meet coming demand.
He said that many 200mm plants had already been transformed from DRAM production to make NAND flash memory chips, the data storage of choice for digital cameras, iPod music players and other consumer electronics products. The 200mm plants still being used for high-end DRAM globally should see their lifelines extend through 2008, he said, when about 83 per cent of global DRAM will come from 300mm factories.
Still, widespread predictions of tight supplies could cause DRAM prices to rise on speculation, much like global oil prices these days. The DRAM market has long acted like other commodity markets worldwide, reacting to rumour and fear faster than reality.
And if there is a real shortage, as many industry players and analysts predict, then users may end up paying more dearly for DRAM over the next few years.